Safe Havens Stuck Below Overhead Supply

JC Parets
November 11, 2019

When stocks are in strong uptrends, they tend to not only do well on an absolute basis, but they outperform their alternatives as well. Two obvious ones are Gold and Bonds.

So if stocks are going to fall hard, like so many people keep telling me, we are likely to see a bid in Precious Metals and US Treasury Bonds. As it turns out, however, we've only seen the exact opposite - bonds and metals struggling below overhead supply.

Back in August I made the case that if stocks were going much higher, as we thought they would, then the S&P500 will hold support at the late December lows relative to both Gold and Bonds. You can watch that short video here. This is what that chart looks like now:

Click on Charts to Zoom in

Notice how the buyers stepped up where they had to. Also take note of the series of higher lows and higher highs the past few months.

The way I (continue to) see it is that if there is pressure on bonds and gold, it's hard for stocks to fall too hard. In fact, as long as we're below overhead supply in these two "safe havens", we want to spend more time looking for stocks to buy, not looking for stocks to sell.

Here is what US Treasury Bonds look like, stuck below resistance from 2016. Last time bonds were up here, interest rates and stocks both spiked very aggressively. Buying bonds and selling stocks was a terrible idea. I think the same today:

We're seeing something similar in Gold. Here is the Gold Mining Index Fund back up to former overhead supply from 2013 and 2016. Last time Miners were up here, selling stocks and buying gold was a terrible idea. I think the same thing today:

If these charlatans preaching the end of the world are finally going to be right (I doubt it), then the bet we're making is that it will show up in the Gold and Bond markets. It hasn't yet and we're not betting it will any time soon.

Now, can bonds and/or gold go up and stocks go up too? Yes, definitely, especially in shorter-term time horizons. But, more importantly, is that the bet we want to be making in the current market environment? My argument is no.

This continues to be a market environment where we want to be looking for stocks to buy. If you see Gold Miners and/or Treasury Bonds breaking out to new highs, we're most likely having a much different conversation. But that's just not the case today. New all-time highs in stocks is a characteristic of an uptrend. We want to buy the things going up, not the things going down.

JC

 

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